Pa. student-loan agency to cut aid, offer employee buyouts

April 25, 2008

HARRISBURG, Pa. — The state’s student-loan agency will cut college grants by up to $750 and offer voluntary buyouts to some employees to ease financial woes blamed on strained credit markets, officials said Thursday.

The agency hopes to save $12.5 million a year through the nonunion buyouts, which will give eligible workers two weeks’ pay for each year of service for up to 16 weeks, said spokesman Keith New of the Pennsylvania Higher Education Assistance Agency.

The number of buyouts needed remains unclear, and will depend on the salaries of the departing workers. But the agency will impose layoffs only as a last resort, New said.

“Never before have we experienced more difficult or severe economic conditions,” he said. “We need to find a way to better match our revenues to our expenses.”

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About 1,500 of PHEAA’s 2,500 employees are nonunion workers.

The buyout announcement came on the same day the agency’s board approved a plan to cut college grants for the 2008-09 school year.

The grants that about 160,000 students receive vary, depending on factors such as college costs, family size and the number of siblings enrolled in college. The maximum award will range from $2,100 to $3,948 next year, compared to this year’s range of $2,500 to $4,700.

PHEAA has been supplementing state tax dollars that fund the grants, which do not have to be repaid, with money from its student-loan earnings since the 2005-06 school year.

It had planned to contribute $35 million to the program next year, but officials said it cannot do so because its earnings have been hurt by troubled credit markets.

The agency lost more than $37 million in the nine months ending March 31, compared to earning nearly $113 million in operating income for the same period a year ago, New said.

The credit crunch also has led PHEAA to temporarily suspend new student loans made through the Federal Family Education Loan Program, citing an inability to raise cash by selling auction-rate bonds.

Rep. Jake Wheatley, D-Allegheny, suggested that the General Assembly might boost the state’s appropriation for the grants if there is sufficient public pressure.

“Right now, we have a crisis that is not necessarily of (PHEAA’s) own doing,” Wheatley said.

Gov. Ed Rendell and some state lawmakers have lambasted PHEAA in recent years over its spending on employee bonuses, trips to exclusive resorts for board retreats, and promotional giveaways, among other things. Board leaders have said new policies adopted last year have ended unnecessary spending.

“We are extremely disappointed with PHEAA’s decision to reduce the grants, particularly at a time when college educations are becoming increasingly less affordable for Pennsylvanians,” Rendell spokesman Chuck Ardo said. “It confirms our fears that their free-spending habits of the past would come home to roost.”

Finding additional state dollars for the grants beyond the $398 million Rendell has recommended — a 3 percent increase — would be “very difficult, if not impossible” given that the state faces a tough budget year, Ardo said.

Rep. Josh Shapiro, one of several lawmakers who have called for reforms at PHEAA, agreed.

“I think it’s a tough sell to find new money in the budget when PHEAA’s track record in wasting money is evident,” said Shapiro, D-Montgomery. “That said, I recognize that the bulk of their problems today are due to the market, and we do need to address the shortfalls created by (that) market.”